Cadre Holdings, Inc. Q3 FY2024 earnings call

• Strong demand for mission-critical safety products across law enforcement, first responder, military, and nuclear markets.
• Ongoing implementation of the Cadre operating model to optimize processes and drive margin expansion.
• M&A program as a key component for long-term growth, with a robust pipeline of potential transactions.
• Impact of cybersecurity incidents on Q3 financial results, including ~5 points of gross margin pressure and revenue shifting to 2025.
• Paid 12 consecutive quarterly dividends and raised the dividend to $0.35 per share annualized.
• Long-term market tailwinds in public safety, with law enforcement and military business being acyclical, and nuclear safety showing stable organic growth.

Cadre saw strong demand for mission-critical safety products across law enforcement, first responder, military, and nuclear markets. The consumer channel represents approximately 8% of contract sales after acquisitions of ICOR and Alpha Safety. Orders backlog was $167 million as of September 30, a $21 million increase from Q2 excluding Alpha Safety and ICOR. The company's asset-light business model supports strong free cash flow generation, which aids M&A objectives and dividend returns.

• Full year 2024 net sales expected in the range of $560 million to $570 million, and adjusted EBITDA in the range of $101 million to $107 million.
• Revenue from the second cybersecurity incident shifted into 2025, leading to guidance revision.
• Capital expenditures expected to be between $6 million and $8 million.

• Cybersecurity incidents caused short-term impact on financial results, including margin pressure and revenue timing issues.
• The incidents led to additional security measures and ongoing efforts to harden the company's infrastructure, though costs are not material.

Q: Regarding the cybersecurity, does revenue shift into Q4 or 2025 and any impact on booking timing?

A: Some revenue shifts into 2025; no other impact outside Q3 margins and revenue timing. Focus is on executing for a large Q4.

Q: Talk about Alpha Safety's M&A pipeline and broader acquisition emphasis?

A: Alpha Safety's M&A funnel is solid; interested in engineered systems providers and nuclear manufacturing companies, including international expansion. M&A funnel not impacted by cyber incident.

Q: Cybersecurity expenses and future impact?

A: Additional security measures implemented, but costs not material; continuous improvement efforts ongoing.

Q: Sales by month in Q3 and impact of cyber incidents?

A: July most impacted, August ramped up, September strong despite second incident; inventory built in September to position for Q4.

Q: Contribution from Alpha and ICOR in Q3?

A: ICOR consistent, Alpha back-end loaded, ramped up in Q3.

Q: Q4 sales drivers and margin expectations?

A: Drivers include armor, duty gear, EOD suits; EBITDA rate pick up due to SG&A leverage.

Q: Nuclear business opportunities and election impact?

A: Opportunities in SMR waste management; no significant impact from election on long-term outlook.